Press Room

Global fund investors increased exposure to Euro Area equities in February following the ECB's announced expansion of their quantitative easing program, according to the new monthly Trends in Investment Fund Portfolio Allocation report by the Institute of International Finance.

The IIF has introduced this new monthly report to closely monitor emerging trends in asset allocation of mutual fund and exchange-traded fund (ETF) investors.

Portfolio flows to emerging markets moderated to $12 billion, down from $23 billion in January, according to the latest EM Portfolio Flows Tracker by the Institute of International Finance.

"EM portfolio flows have been very volatile in recent months," said Robin Koepke, an economist at the IIF and lead author of the report. "These gyrations are likely to continue in the period ahead as Fed interest rate hikes come closer and investors adjust their expectations of the likely pace of Fed tightening."

The global economy is gradually gaining momentum, led by the U.S. and Euro Area economies, but emerging economies are lagging behind, according to the IIF's latest Global Economic Monitor.

Overall, global growth is projected at 3 percent in 2015 and 3.3 percent in 2016, up from 2.6 percent in 2014. The IIF raised its forecast for mature economies by 0.2 percent to 2.3 percent, in part because of the benefits of lower oil prices on consumption. However, the outlook for emerging markets has been marked down by around half a percentage point.

"We are witnessing unusual divergences in the global economy," said Charles Collyns, chief economist at the IIF. "Where U.S. growth and a pick-up in Euro Area growth should push global growth up to its highest rate since 2011, many emerging markets are not yet sharing in the upswing, held back by home-made problems which offset some of the positives."

Emerging market GDP growth weakened further from its subdued pace of 3.6 percent in Q4 according to the January update of the IIF’s EM Coincident Indicator. The IIF reported that the EMCI declined in January to 3.2 percent.

“Signs that growth is continuing to slow in emerging markets is definitely a worry," said Charles Collyns, Chief Economist at the IIF. "Momentum seems to be picking up in advanced economies, but the benefits have yet to spread very far."

Divergence in G4 monetary policies has heightened uncertainty and market volatility that will likely persist, if not increase, as political tensions are on the rise, according to the Institute of International Finance's February Capital Markets Monitor.

"The ECB's comprehensive QE program has brought to the fore the challenges posed by the ECB and BoJ easing moves," said Hung Tran, executive managing director at the IIF. "Other countries will either need to match these easing measures, or see their currencies strengthen against the euro and the yen. This fresh wave of QE will prolong a world of plentiful liquidity and zero or negative interest rates more than six years after the financial crisis."

The Institute of International Finance today announced the IIF Future Leaders Class of 2015.

“The future of our industry will be determined, in part, by those who lead it,” said Tim Adams, president and CEO of the IIF. “Our Future Leaders program is meant to bring some of the brightest emerging talent in the industry together with current leaders to discuss pressing issues and to learn from one another.”

Bank lending conditions in emerging economies continued to tighten in 2014Q4 as deteriorating funding conditions offset stronger loan demand, according to the latest Emerging Markets Bank Lending Conditions Survey from the Institute of International Finance.

"Even as demand for bank lending has risen, the supply-side has weakened as the financial market volatility in the fourth quarter of last year weighed on bank funding conditions," said Charles Collyns, chief economist at the IIF.

The Institute of International Finance today released the following statement following a meeting of the IIF Board of Directors in Zurich, Switzerland:

“The IIF Board of Directors endorses the standard aggregated collective action clauses and pari passu clauses for the terms and conditions of sovereign notes released by the International Capital Market Association in August 2014. The IIF encourages its members to promote the use of these proposed terms in sovereign debt contracts.”

Capital flows to emerging markets will decline further in 2015, as the Fed starts to raise policy rates and emerging market growth remains lackluster, according to the IIF’s January report on Capital Flows to Emerging Markets.
The IIF estimated that total private non-resident capital flows to emerging markets fell by $250 billion last year from an all-time high of $1.35 trillion in 2013, to just under $1.1 trillion in 2014. The IIF said that the decline was accounted for by a collapse in flows to Russia triggered by the Russia-Ukraine conflict, but portfolio flows were affected more generally by episodes of risk aversion, notably in the fourth quarter.